Cotton prices remain under pressure

Cotton prices remained under pressure since the beginning of this week. Consequently, the Karachi Cotton Association (KCA) was obliged to reduce the ex-gin price of grade three cotton by Rs 50 per maund (37.32 Kgs) and fixed it at Rs 6,750 per maund last Tuesday. Again on Thursday, it reduced the price of grade 3 cotton by Rs 50 per maund and fixed it at Rs 6700 per maund in a dull market.

New crop (August 2017/July 2018) has already started and 2400 bales of cotton have already been ginned in Sindh as five or six factories ginning the new crop cotton are in operation. According to one trader, new crop cotton is being offered at Rs 6600 per maund for which there are also no buyers. New crop (2017/2018) had been selling at Rs 7000 per maund earlier on its arrival.

Besides higher output of cotton being projected for U.S.A. for the forthcoming season (2017/2018) which has pressured the cotton prices, output in Pakistan is also being estimated higher from 12 to 12.5 million bales (155 Kgs). New crop quality for the few bales which have arrived is said to be good. However, enquiries for the new domestic crop are few. Muted cotton prices are due to continued trouble and difficulties being faced by the local textile industry.

Seed cotton (Kapas/Phutti) price in Sindh which started selling at Rs 3600 per 40 Kgs when the new crop (2017/2018) started arriving about ten days ago is now selling at Rs 3300/Rs 3400 per 40 kilogrammes. It has also been reported that beneficial rains have been received in such cotton stations as Arifwalla, Burewalla, Bahawalnagar, Deraghazi Khan and Harunabad in the Punjab. Appreciably more cotton sowing of the new crop (2017/2018) has been reported from Punjab.

Sales of new crop cotton for delivery after the festival of Eid-ul-Fitr viz. around the end of this month being factory delivery is said to have been finalized at Rs 6200 per maund (37.32 Kgs), Recent reports from China, U.S.A., and India indicate a bearish projection for the incoming cotton crop. Likewise, New York cotton futures prices are reported to have slid to their lowest levels since January 2017.

In Pakistan, even lower cotton prices are not helping the spinner who is burdened by heavy taxes and difficult procedures while claiming their legitimate returns and entitlements from the government. Thus Pakistan textile industry is suffering from high cost of doing business compared to its regional competitors.

On the global economic and financial front, quite a few indicators are showing that stability and growth have started gaining ground which extricate several countries and regions from the morass into which they had fallen in 2007 / 2008. However, a cohesive political and economic policy like that in America and Europe, extending to Canada, Japan, Singapore or Australia is decidedly lacking. Indeed the Atlantic alliance between several countries over the past several decades is cracking or dissolving.

Take the United Kingdom as an example. London has decidedly played the role of the foremost financial center of the world over the past several decades. However, the recent election fiasco arising out of the hung parliament following the loss of simple majority by prime minister Teresa May has complicated the Brexit issue and weakened the government which must rely on smaller parties from Northern Ireland like Sinn Fein, the UUP Alliance and the SDLP to form a government.

Such a situation in Great Britain could not only weaken the Brexit negotiations but could also necessitate another general election in the United Kingdom this year. Premier May would probably have to keep shuffling her cabinet to cling to power which could possibly force her to call for further snap general elections. This possible scenario would portray the dismantling of the Western hold on global economic and political power which hegemony functioned quite effectively over the preceding three quarters of a century with America and Britain playing the leading role. Investors in general all over the world are quite worried about the political uncertainty prevailing in the United Kingdom. Furthermore, three terror attacks in the United Kingdom over the past three months have terrified the British people. Politics in Westminster have sunk into utter turmoil. Investors are rightfully unnerved because of ensuing economic uncertainty.

In the United States, U.S. congressman Steve Scalise has been shot at baseball practice game in Alexandria, Virginia. In other news, there are reports that President Donald Trump may be investigated for obstruction of justice. Therefore, president Trump may be put under scrutiny.

Notwithstanding the good functioning of the equity markets and the increase in the United States interest rates by the Federal Reserve to higher levels than obtaining on or before the year 2008, several economists remain skeptical regarding a sustained global economic recovery.

The lurking fear is that any recent economic growth or recovery in the Eurozone, America, United Kingdom may be short-lived and any credit or housing bubble in China or the tussle in the Middle East arising out of the Qatar imbroglio could conceivably shake up the entire global economy.